Thom Calandra settles fraud charges with SEC (January 24, 2005)

In early January, the U.S. Securities & Exchange Commission brought and settled civil fraud charges against Thom Calandra, co-founder and editor-in-chief of the web site www.cbs.marketwatch.com and editor-in-chief of The Calandra Report, a short-lived, more mining-oriented online newsletter.

The SEC alleged Calandra “profited by secretly selling stocks shortly after his investment newsletter’s positive recommendations of the stocks caused their prices to rise.”

More specifically, the SEC alleged that, from March to December 2003, Calandra followed his “buy-write-sell” pattern some 100 times in 23 different stocks that he covered in The Calandra Report without disclosing his actions to his readers.

In settling the matter, Calandra neither admitted nor denied the SEC’s allegations but did agree to refrain from future violations of the anti-fraud provisions of U.S. securities laws. Calandra will also disgorge $416,000 in trading profits and prejudgment interest, and pay a civil penalty of $125,000.

“Calandra betrayed his readers’ trust by surreptitiously using his newsletter, The Calandra Report, to bolster his personal trading profits,” states Helane Morrison, district administrator of the SEC’s San Francisco office. “Calandra’s readers were entitled to know about his trading activity, so that they could evaluate the credibility and impartiality of Calandra’s investment advice for themselves.”

The SEC acknowledged that Calandra’s relatively low financial penalty reflected his co-operation with investigators.

The SEC’s statement of complaint, filed in the U.S. District Court for the Northern District of California, cites a trade on Sept. 16, 2003, where Calandra bought 6,000 shares at 69 cents of Pacific Minerals, an affiliate of Ivanhoe Mines (IVN-T). (Pacific has since been renamed Jinshan Gold Mines [JIN-V] and relocated to Beijing from Vancouver.) Calandra then wrote two favourable articles in the ensuing days, and on the following day promptly sold all 6,000 shares at $1.06.

A little over a month later, Calandra bought another 42,000 Pacific Minerals shares at an average of $1.34 apiece and then, over two days, wrote that the company was “only at the beginning of its meteoric stock rise” and “was close to revealing stunning results.” He added in the second article: “The floodgates are opening.”

Then, again, Calandra immediately dumped all his shares into the resulting strong buying at an average price of $2.57.

States the SEC: “In total, Calandra made nearly $53,000 in illegal profits (an 89% return) by scalping Pacific Minerals stock.”

In a second example, the SEC alleged Calandra failed to tell his readers he had received compensation from an unnamed stock promoter affiliated with Panama City-based Goldmarca (GML-V) and Vancouver-based IMC Ventures, both of which Calandra had profiled in The Calandra Report. (IMC has since been renamed Triumph Gold [TAU-V].)

The SEC says the compensation took the form of heavily discounted shares, which Calandra later sold at a substantial profit ($113,519 in total) after the stock prices rose following his favourable newsletter write-ups.

“There’s obviously no shortage of concern out there about some of these penny stocks and promoters and so forth,” Marc Fagel, assistant district administrator of the SEC’s San Francisco office, tells The Northern Miner. “This was a case where we were trying to make a very narrow point about the role of financial journalists. This is the completion of the investigation as it relates to Calandra and Marketwatch.”

Adds Fagel: “It’s important to get across that stock promotion is not, per se, illegal; giving someone compensation to cover your security is not, in itself, a violation of U.S. securities laws. There are various risks involved and regulatory issues that can arise, but in terms of what it was that Calandra was doing — taking compensation and not disclosing it — that’s his responsibility. That’s not something the promoter is on the hook for.”

Fagel points out that different kinds of newsletters are used in different ways, one kind being strictly promotional material (“spam”), for which there are minimal disclosure requirements.

“That’s legal, as long as you’re making that disclosure,” says Fagel. “What was different about this case is we were not perceiving Calandra as a shill, that is, as somebody who was just hired to put out releases. He was a journalist who was covering things and not giving the sort of disclosures we would have expected to see, [such as] that he was profiting from his recommendations.”

Fagel continued: “This was, or appeared to be, an extreme situation of someone who was going beyond just picking a stock that he happened to own. He really did have this repeated pattern of buying up the stocks and then picking them and selling them. Calandra’s conduct was unusual, and it was important for us to get the word out about the conduct he was engaged in.”

The SEC is not revealing the names of, or circumstances surrounding, the remaining 20 stocks in the Calandra case. Says Fagel: “We tried to give an example, but we’re not saying the companies did anything improper. We didn’t want to create a perception that these are all bad companies and there’s something wrong with them. You can have these penny stocks and have them perfectly legitimate.”

He adds that there were no cross-border regulatory issues between the U.S. and Canada in this case. “Generally, we have good relationships with regulators in Canada and expect that that’s going to be more and more relevant in our investigations.”

In a written response, Calandra says he is “happy to have finally reached a settlement with the SEC on this matter” and “happy to have preserved intact my ability to pursue my life’s work — writing and publishing.”

Reached in New York, N.Y., Calandra’s spokesman Robert Silverman, a partner with public-relations firm Gramercy Strategies, says Calandra “obviously was looking at this expediently; he wanted to put this behind him in terms of not exposing his family to anything that would be protracted. He gets to continue writing and publishing and has no prohibitions against sitting on the boards of publicly traded companies.”

Calandra, meanwhile, has moved on. The 48-year-old resident of Sausalito, Calif., is now writing research papers about biotechnology and pharmaceutical companies for San Francisco-based consulting firm LSG International.

Silverman says he has “absolutely no idea” whether Calandra has any plans to return to the mining-investment industry.

In his statement, Calandra did not specifically address, nor apologize to, his former paid subscribers, who peaked at around 6,500 and each of whom had ponied up US$299 annually for Calandra’s own brand of stock tips. (Marketwatch, however, has refunded subscribers.)

After obtaining his B.A. and Master’s (English) degrees in the U.S., Calandra spent 20 years as a financial journalist, including stints with Marin Independent Journal, The San Francisco Examiner, Bloomberg News, USA Today Online and The Financial Times‘ web site FTMarketwatch.

Calandra’s last employer, CBS Marketwatch, is based in San Francisco and owned by Marketwatch (mktw-q), which operates two free web sites — www.cbs.marketwatch.com and www.bigcharts.com. The web sites are used by 8 million people each month. Marketwatch also produces syndicated television and radio programs and reports.

Beginning in 1997, Calandra was the chief market commentator at CBS Marketwatch and wrote a free, regular column called “Thom Calandra’s StockWatch.” This column continued to be published alongside the paid-subscriber The Calandra Report, which was launched in March 2003.

The newsletter was folded and Calandra resigned as a Marketwatch employee on Jan. 22, 2004, after an internal probe by CBS Marketwatch into Calandra’s trading activities.

That probe was prompted by the SEC’s request for records of Calandra’s personal stock trades and e-mail messages.

In April 2004, the SEC also subpoenaed the personal trading records of four Marketwatch officers in relation to the Calandra case: Chief Executive Lawrence Kramer, Editor-in-Chief David Galloway, Chief Technology Officer James Thingelstad, and Executive Vice-President William Bishop. The Commission has not found evidence of wrongdoing in those files.

Regarding the final settlement, CBS Marketwatch says it has fully co-operated with the SEC and describes the settlement as a “personal matter between Calandra and securities regulators.”

Calandra, states Marketwatch, was a “commentator who was required by [our] policies to disclose to Marketwatch users the trading of any instruments discussed in his columns.”

Marketwatch has a policy whereby employees must disclose purchases or sales of securities, and reporters writing about a company in which they own stock must refrain from trading their holdings for 48 hours after a story is published.

Marketwatch adds that “editorial integrity is the cornerstone of this company.”

Still, Dan Silmore, Marketwatch’s vice-president of marketing, says he does not know when, or even if, all of Calandra’s many, freely accessible articles dating back to 1997 will be removed from the CBS Marketwatch web site.

Calandra also regularly appeared as a guest commentator on CBS television and radio, including TV’s CBS Evening News. A day before the Calandra-SEC settlement, CBS News dismissed four executives after an independent panel found that a 60 Minutes Wednesday program about President George W. Bush’s service in the Texas Air National Guard was unfair, misleading, and not properly vetted.

“This is a rude awakening for CBS News,” CBS Chairman Leslie Moonves said of the panel’s 60 Minutes report. “The CBS News culture has to change.”

Marketwatch’s two largest investors, at 22.3% apiece, are CBS (owned by media giant Viacom [VIA-N]) and U.K. publishing house Pearson, the parent company of The Financial Times. The remainder of Marketwatch is publicly traded.

However, in November, Dow Jones & Co. (DJ-N), publisher of The Wall Street Journal, agreed to buy Marketwatch for US$519 million in cash, a premium of about 7.2%. The deal is slated to close in late January.

We’ll leave the last words to Calandra, who wrote in a CBS Marketwatch column in June 2003 that “news-driven price swings make ‘event investing’ lucrative, but only when you’re there at the very start of the trail — weeks and months before anything crosses the financial wires.”

He also issued this caution to readers, in a March 2002 column: “In this market, it is getting harder to know just who’s right and who’s full of beeswax. That’s the perennial problem on Wall Street. Even the con artists in lower Manhattan believe in what [they’re] selling. That’s the sign of a great con artist.”